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How reliable technical/charting analysis in stocks/commodities trading?since it's only chart of price history
Answers
265 points
MaverickInvestor answered one year ago …
You're right to say that it's only price history if you're looking at a static daily chart, for example.
However, technical analysis works primarily with live charts, drawn from live data pulled from the markets on a second-by-second basis. In this case, a chart is then less about price history (though you do have all that, of course, from which to draw trend lines, support and resistance levels and so on) and more about current market sentiment and psychology.
Indeed, one theory has it that technical analysis works primarily because so many people do it! So, if a price breaks through a support level that everyone has marked on their charts, then everyone sees that break, and everyone sells in response, so driving the downward move that everyone expects! I think there's a bit more to it that that, but the self-fulfilling prophecy idea certainly carries some weight.
Keep an eye on...
http://maverick-investor.com/go/investing_in_stocks/technical-analysis/
if you want to learn more - we're updating all the time, and technical trading is one of my passions.
546 points
warren answered one year ago …
Man that's a tough question. Generally trading large cap stocks works well with TA but small caps are useless to try using TA on. Commodities are a different breed all together and they all seem to have their own personality.
I say focus on one commodity at a time until you really get to know it. You know some of the most successful traders only focus on one stock or one comodity and really get to know it intimately.
On price history. TA is based on history and the good chance of the patterns repeating themselves. As Mark Twain said something; like history doesn't repeat but it rhymes sometimes!
411 points
jester112358 answered one year ago …
That's why disclaimers always say "past performance is no guanantee of future performance". My feeling is that its a self-fulfilling prophecy as MaverickInvestor suggested. If enough people are using charts to determine their behavior then it could be effective. But the news one cannot predict has a lot more influence on market behavior. A single major event like 9/11 or Katrina, or a run on a major bank has a much larger effect on the capital markets. So, charts are most useful as confidence builders to give rules for entry and exit points and remove some emotion from buying and selling decisions.
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116 points
yorkie answered one year ago …
Tech analysis is what it is by itself; and after everybody knows it , has a lot of self fulfilling prophesy too. Lately, changes in prices had been influenced by outside news, rather than technical analysis.
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